Speaking to the controversy surrounding possibly illegal foreclosures, Secretary of Housing and Urban Development Shaun Donovan said Wednesday that the White House would "not tolerate business as usual in the mortgage market."
Donovan said the results of an ongoing, multiagency review had found "significant differences" in the performance of mortgage lenders, but that the Federal Housing Agency (FHA) had not yet found any evidence of "systemic issues," in the foreclosure market.
Asserting that the Obama administration was "committed" to resolving issues surrounding the mortgage market, Donovan pointed to a meeting held earlier with 11 federal agencies -- part of an ongoing process to review foreclosures, which is expected to conclude at the end of the year.
Donovan said that in its review, the FHA is paying special attention to whether the foreclosure process was being followed correctly and whether lending agents were taking steps to keep people in their homes.
"Throughout our reviews, as we uncover bad practices, cutting corners or sloppy processes that disregard or ignore the rights and protections of any homeowner, we're committed to forcing institutions to change the way that they conduct business," he said.
Though Donovan said that the review's initial findings showed evidence of noncompliance "with FHA rules and regulations," he would not disclose which lenders were the worst offenders, nor would he specify how far along in the process the FHA might be. "There's a due process here," he said.
In the meantime, mortgage lenders, including Bank of America and GMAC, have announced plans to resume foreclosures following a temporary moratorium -- which Donovan called "their business decision." Donovan said the federal government was making efforts to expedite its review. But, Michael Barr, assistant treasury secretary for financial institutions, added that "fundamentally, this is up to the banks and the servicers to fix. This is not a problem for Secretary Donovan to fix."
In previous weeks, amid calls for a national moratorium on foreclosures, the White House maintained that a freeze on home foreclosures would be disastrous to the still-recovering housing market. "There are a series of unintended consequences to a broader moratorium," said Press Secretary Robert Gibbs.
Donovan, for his part, rebuffed any suggestions that the White House was late to the game in resolving housing market issues. "This is a longstanding focus that we've had," he said.
I’m not immersed in the foreclosure fraud crisis but I am pretty well versed on title insurance and from what little I’ve read from the excerpts here and there, I don’t see this in the same way.
Title insurance is available to owners as well as lenders. Often, owners may not be sophisticated enough to ask for it, but most realtors will steer them if they don’t think about it. So in a typical transaction, where a buyer is getting a loan for a property, the lender will require that the borrower purchase title insurance for the benefit of the lender, where the premium will be based in part on the size of the mortgage. Most owners will also request and get an owner’s policy with that premium based on the purchase price – but most title insurers will give the owner something called a simultaneous issue rate so that they pay a much reduced price since the loan amount has already been insured over in the lender’s policy.
I can’t really do justice in the amount of time I have, but once upon a time real estate transactions didn’t close on title insurance, they closed on opinions of real estate counsel and certificates of title and the like. All of those processes (including modern title insurance) involved a lot of work reviewing the actual “record title” of property, to make sure that there was a clean “chain of title.” The problem is/was that there are a lot of things that can impact title other than chaining out title.
For example, there can be a clean record “chain” for blackacre from Mr. A to Mrs. B to Ms C, and yet Ms C might not get clear title from Mrs. B. This might be because of patent defects or latent defects. A patent defect would be one obvious from a review of the documents (misspelled names, Mrs. x y B conveying as Mrs. x [no y] B, typos on dates or subscriptions or notary dates post-dating signature dates etc.) A latent defect would typically be something like a forged signature (Mrs. B is really in a nursing home and her daughter pretends to be her and sells the house) or something like Mrs. B claiming to be a widow with sole rights of survivorship in the property, when instead her husband is doing time for FISA felonies.
There are also other things that might affect either or both of title to the property or the right to use property for its intended purpose. For example, Mrs. B might have had work done to the property and have not paid the workers – for a period of time those workers might have a right to file a lien on the property (mechanics lien). So 20,000 in repairs/renovations recently completed is owing when Mrs. B sells to Ms. C, the mechanics liens against the property might not show up until a month after closing. Also, Mrs. B might have entered into an unrecorded lease of the house to Tenant T and under state laws, Tenant T might have the rights of a “party in possession” under state law and Ms. C might not be able to move into “her” house (or even get the rent, depending on things) until after, for example, lease expiration.
Also, Ms C might be looking at her lovely back yard with a beautiful hand crafted stone and wrought iron fence all around it (part of the 20,000 in mechanics liens that are getting ready to be filed) – except that this fence isn’t really on property line. Maybe she owns another 100 feet beyond, maybe she’s encroached on her neighbor’s property, maybe she’s violated a county setback ordinance. No amount of “public records” review or even fraud protection with help with that – you need surveys.
Enter title insurance. It provided a way for owners – but more importantly for lenders who were going to be in the business of loaning against lots of properties – to shift the risk of some or all of these problems to a third party. As a matter of pragmatism, it already takes a lot of time and money to do a full, back to land patent, public records search. No one is going to be able to add the full costs of outright investigations into rights of parties in possessions, possible mechanics liens issues, investigations of identies and signing rights for all persons in the chain, etc. without adding tens of thousands to closing costs.
However, some of these things don’t happen that frequently and can be greatly reduced by a few kinds of precautions. So the title insurers have standards for possible (but not deemed likely) defects that they will “insure over” (things where no one knows for sure that everything is all right – like fraud in the chain) and things for which they will take exceptions (not provide insurance for that item) or where they will insure over their exceptions based on other documentation (for example, they might not insure over rights of parties in possession in general, but if the seller signs off on an affidavit regarding rights of parties in possession, the title company may insure against rights of parties in possession or the title company may not provide boundary line insurance, but with a survey or if the property is in a platted subdivision, they might insure for that).
The fact that the title insurance company would insure for fraud defects in title and take an affidavit from Mrs. B that no one has possessory rights in blackacre and provide boundary insurance, etc. HUGELY facilitates the residential real estate market here in the states. Lenders can loan, purchasers can GET a loan, etc. all more freely and much more economically and with less risk.
Note that when the insurance company insures over defects for something like fraud in the chain, they assume that risk and have a very iffy route of recovery (the daughter who pretended to be Mrs B may be hard to find, have no assets, and more importantly didn’t have direct privity with the insurer). Similarly, when the insurer insures over a possible defect based on an affidavit (for example, Mrs. B’s rights of parties in possession affidavit) the insurance company is still assuming the risk for that difect, but now has a more direct right against the affiant.
This means that the lender with title insurance (and the owner if they got a simultaneous issue owner’s policy) gets paid by the title insurance company for losses from defects, and the title insurance company has to pursue the party who committed the fraud in the chain or the giver of the affidavit for recovery.
In this foreclosure crisis, a lot of the sellers are not Mrs B, they are Foreclosing Bank B. If no one will loan to purchasers who want to buy foreclosed properties, the problem is going to get worse. But if title insurance companies won’t insure over foreclosure defects because it is public knowledge that those defects may be very widespread and in many cases, latent or even legally uncertain, then buyers are going to have a harder time.
Latent defects in a foreclosure property might include, for example, the robosigning issue. That might mean that the foreclosure affidavits given to the courts (not filed in the real estate records), where the affiant says they have care and custody of the documents, know the history, personally reviewed everything, etc., may be fraudulent affidavits, but there is no way to tell from just looking at the foreclosure affidavit and without delving more deeply – sometimes much more deeply (and expensively).
In addition to discovering the fraud in the affidavit, typically a court order of foreclosure would supercede any objections to the fraudulent affidavit not raised in the foreclosure proceedings, so the effect of the fraud is also going to be an unknown where objections were not time raised (i.e., is there a right that affects the property, or only a right of recovery for money damages against the fraud perpetrators or only a right based on material fraud and what will be the standards for materiality if the mortagee is in default, and will it be different if there is a deed of trust v. a mortgage etc.)
So it seems to me that this is just a fairly prudent approach. On the one hand, it will facilitate the abiilty to sell properties that are the subject of foreclosure and there are some arguments to be made that moving already foreclosed upon properties should be slowed down with efforts to put the foreclosed persons back in the homes, but there are some equally or more so compelling arguments that the ability to sell homes that have already been the subject of court orders is pretty necessary to keep the market from further collapse.
The title insurer is still going to bear a risk of loss if they get the affidavits from foreclosing entities. It’s just that the insurer will go ahead and pay off under lenders’ and owners’ policies and be the entity to pursue the forclosing bank/title insurance affiant. In some ways, this makes a lot of sense, bc the title insurer is the entity likely to have accumulated claims against the forecloser who is giving multiple affidavits for multiple property and those accumlated claims should make pursuit of legal claims more efficient and pit the party (the insurer) with the most vested interest and relatively deep pockets directly against the foreclosing lender.
A title insurer is going to have more clout to go against the foreclosing banks for their defects than an assortment of individual purchasers and lending banks. I think there’s an argument that the foreclosers having to provide direct affidavits to the title companies is likely to get them to clean up their acts more, and with less damage to some already hard hit markets, than if no title company will write title on foreclosure transactions and even purchasers who didn’t purchase owners policies are going to benefit if foreclosers know that a title company that may get bit on transactions involving lots of different lending banks is going to be coming after them.
I also don’t think there’s any disincentive from a forclosers affidavit for title companies to try to identify patent defects (like post-dated notaries – although in many of those instances those defects might be litigation defects in the court proceeding, that are typically merged into the court order if not appealed or raised in the foreclosure proceeding) because the title company is still on the hook to the lending insurer and will have to try to recover from the forecloser.
I don’t really think that title companies are going to be “doing less” than if they hadn’t come up with the affidavit option. Title companies in general would never have a duty to examine all the underlying details of a piece of foreclosure litigation (including affidavits given in that litigation) because that is the function of the court in that litigation – they would normally only be responsible for a review of the court order and appeals periods.
If the title companies were somehow goign to be charged with undertaking the responsiblity for being the entity to review the litigation proceedings for regularity and lack of fraud or latent defects and insure that regularity directly, it would add thousands and thousands to closing costs for a foreclosure property if you could even get a title company to do it. Most just wouldn’t write title for foreclosures (they don’t have any duty to provide that insurance), so foreclosed properties would have that many more problems getting a lender to loan for their purchase.
Now, while argument can be made that “well, fine, that’ll teach those foreclosing banks, especially the ones that had fraud, those properties will just sit and sit, with the owners kicked out and no one able to get a loan to buy” there are a lot of problems with that as well. For one thing, more prior owners of foreclosed properties are going to look at bankruptcy, since they typically have liability under their notes for all expenses, including carrying costs and foreclosure costs and those costs will just continue to mount. Empty properties attract vandalism and batter surrounding property values and lenders who have foreclosed property that can’t be moved are going to be causing a really big impact in the markets and vis a vis their own investors and even at times account holders.
I do think banks should have their feet held to the fire over foreclosure fraud but I’m not sure that clouding or halting the ability to allow for the transfer of forelosed properties where no appeals are pending to new purchasers is the most productive route and I think the affidavit process the title insurer is seeking may facilitate the process and put an entity with a vested interest to reduce title fraud in general and with a broad enough exposure and deep enough pockets into a position where it can now directly pressure foreclosers.
longwinded fwiw.
eric seiger
Google <b>News</b> experiments with metatags for publishers to give <b>...</b>
One of the biggest challenges Google News faces is one that seems navel-gazingly philosophical, but is in fact completely practical: how to determine authorship. In the glut of information on the web, much of it is, if not completely ...
Casting <b>News</b>: How to Score a Guest Spot on 'Glee,' Annette O'Toole <b>...</b>
If you want to be on 'Glee' and are not an A-list recording artist or an Oscar nominee promoting your new movie, there's still hope.
Kinect doubles UK Xbox sales Xbox 360 <b>News</b> - Page 1 | Eurogamer.net
Read our Xbox 360 news of Kinect doubles UK Xbox sales.
eric seiger
Speaking to the controversy surrounding possibly illegal foreclosures, Secretary of Housing and Urban Development Shaun Donovan said Wednesday that the White House would "not tolerate business as usual in the mortgage market."
Donovan said the results of an ongoing, multiagency review had found "significant differences" in the performance of mortgage lenders, but that the Federal Housing Agency (FHA) had not yet found any evidence of "systemic issues," in the foreclosure market.
Asserting that the Obama administration was "committed" to resolving issues surrounding the mortgage market, Donovan pointed to a meeting held earlier with 11 federal agencies -- part of an ongoing process to review foreclosures, which is expected to conclude at the end of the year.
Donovan said that in its review, the FHA is paying special attention to whether the foreclosure process was being followed correctly and whether lending agents were taking steps to keep people in their homes.
"Throughout our reviews, as we uncover bad practices, cutting corners or sloppy processes that disregard or ignore the rights and protections of any homeowner, we're committed to forcing institutions to change the way that they conduct business," he said.
Though Donovan said that the review's initial findings showed evidence of noncompliance "with FHA rules and regulations," he would not disclose which lenders were the worst offenders, nor would he specify how far along in the process the FHA might be. "There's a due process here," he said.
In the meantime, mortgage lenders, including Bank of America and GMAC, have announced plans to resume foreclosures following a temporary moratorium -- which Donovan called "their business decision." Donovan said the federal government was making efforts to expedite its review. But, Michael Barr, assistant treasury secretary for financial institutions, added that "fundamentally, this is up to the banks and the servicers to fix. This is not a problem for Secretary Donovan to fix."
In previous weeks, amid calls for a national moratorium on foreclosures, the White House maintained that a freeze on home foreclosures would be disastrous to the still-recovering housing market. "There are a series of unintended consequences to a broader moratorium," said Press Secretary Robert Gibbs.
Donovan, for his part, rebuffed any suggestions that the White House was late to the game in resolving housing market issues. "This is a longstanding focus that we've had," he said.
I’m not immersed in the foreclosure fraud crisis but I am pretty well versed on title insurance and from what little I’ve read from the excerpts here and there, I don’t see this in the same way.
Title insurance is available to owners as well as lenders. Often, owners may not be sophisticated enough to ask for it, but most realtors will steer them if they don’t think about it. So in a typical transaction, where a buyer is getting a loan for a property, the lender will require that the borrower purchase title insurance for the benefit of the lender, where the premium will be based in part on the size of the mortgage. Most owners will also request and get an owner’s policy with that premium based on the purchase price – but most title insurers will give the owner something called a simultaneous issue rate so that they pay a much reduced price since the loan amount has already been insured over in the lender’s policy.
I can’t really do justice in the amount of time I have, but once upon a time real estate transactions didn’t close on title insurance, they closed on opinions of real estate counsel and certificates of title and the like. All of those processes (including modern title insurance) involved a lot of work reviewing the actual “record title” of property, to make sure that there was a clean “chain of title.” The problem is/was that there are a lot of things that can impact title other than chaining out title.
For example, there can be a clean record “chain” for blackacre from Mr. A to Mrs. B to Ms C, and yet Ms C might not get clear title from Mrs. B. This might be because of patent defects or latent defects. A patent defect would be one obvious from a review of the documents (misspelled names, Mrs. x y B conveying as Mrs. x [no y] B, typos on dates or subscriptions or notary dates post-dating signature dates etc.) A latent defect would typically be something like a forged signature (Mrs. B is really in a nursing home and her daughter pretends to be her and sells the house) or something like Mrs. B claiming to be a widow with sole rights of survivorship in the property, when instead her husband is doing time for FISA felonies.
There are also other things that might affect either or both of title to the property or the right to use property for its intended purpose. For example, Mrs. B might have had work done to the property and have not paid the workers – for a period of time those workers might have a right to file a lien on the property (mechanics lien). So 20,000 in repairs/renovations recently completed is owing when Mrs. B sells to Ms. C, the mechanics liens against the property might not show up until a month after closing. Also, Mrs. B might have entered into an unrecorded lease of the house to Tenant T and under state laws, Tenant T might have the rights of a “party in possession” under state law and Ms. C might not be able to move into “her” house (or even get the rent, depending on things) until after, for example, lease expiration.
Also, Ms C might be looking at her lovely back yard with a beautiful hand crafted stone and wrought iron fence all around it (part of the 20,000 in mechanics liens that are getting ready to be filed) – except that this fence isn’t really on property line. Maybe she owns another 100 feet beyond, maybe she’s encroached on her neighbor’s property, maybe she’s violated a county setback ordinance. No amount of “public records” review or even fraud protection with help with that – you need surveys.
Enter title insurance. It provided a way for owners – but more importantly for lenders who were going to be in the business of loaning against lots of properties – to shift the risk of some or all of these problems to a third party. As a matter of pragmatism, it already takes a lot of time and money to do a full, back to land patent, public records search. No one is going to be able to add the full costs of outright investigations into rights of parties in possessions, possible mechanics liens issues, investigations of identies and signing rights for all persons in the chain, etc. without adding tens of thousands to closing costs.
However, some of these things don’t happen that frequently and can be greatly reduced by a few kinds of precautions. So the title insurers have standards for possible (but not deemed likely) defects that they will “insure over” (things where no one knows for sure that everything is all right – like fraud in the chain) and things for which they will take exceptions (not provide insurance for that item) or where they will insure over their exceptions based on other documentation (for example, they might not insure over rights of parties in possession in general, but if the seller signs off on an affidavit regarding rights of parties in possession, the title company may insure against rights of parties in possession or the title company may not provide boundary line insurance, but with a survey or if the property is in a platted subdivision, they might insure for that).
The fact that the title insurance company would insure for fraud defects in title and take an affidavit from Mrs. B that no one has possessory rights in blackacre and provide boundary insurance, etc. HUGELY facilitates the residential real estate market here in the states. Lenders can loan, purchasers can GET a loan, etc. all more freely and much more economically and with less risk.
Note that when the insurance company insures over defects for something like fraud in the chain, they assume that risk and have a very iffy route of recovery (the daughter who pretended to be Mrs B may be hard to find, have no assets, and more importantly didn’t have direct privity with the insurer). Similarly, when the insurer insures over a possible defect based on an affidavit (for example, Mrs. B’s rights of parties in possession affidavit) the insurance company is still assuming the risk for that difect, but now has a more direct right against the affiant.
This means that the lender with title insurance (and the owner if they got a simultaneous issue owner’s policy) gets paid by the title insurance company for losses from defects, and the title insurance company has to pursue the party who committed the fraud in the chain or the giver of the affidavit for recovery.
In this foreclosure crisis, a lot of the sellers are not Mrs B, they are Foreclosing Bank B. If no one will loan to purchasers who want to buy foreclosed properties, the problem is going to get worse. But if title insurance companies won’t insure over foreclosure defects because it is public knowledge that those defects may be very widespread and in many cases, latent or even legally uncertain, then buyers are going to have a harder time.
Latent defects in a foreclosure property might include, for example, the robosigning issue. That might mean that the foreclosure affidavits given to the courts (not filed in the real estate records), where the affiant says they have care and custody of the documents, know the history, personally reviewed everything, etc., may be fraudulent affidavits, but there is no way to tell from just looking at the foreclosure affidavit and without delving more deeply – sometimes much more deeply (and expensively).
In addition to discovering the fraud in the affidavit, typically a court order of foreclosure would supercede any objections to the fraudulent affidavit not raised in the foreclosure proceedings, so the effect of the fraud is also going to be an unknown where objections were not time raised (i.e., is there a right that affects the property, or only a right of recovery for money damages against the fraud perpetrators or only a right based on material fraud and what will be the standards for materiality if the mortagee is in default, and will it be different if there is a deed of trust v. a mortgage etc.)
So it seems to me that this is just a fairly prudent approach. On the one hand, it will facilitate the abiilty to sell properties that are the subject of foreclosure and there are some arguments to be made that moving already foreclosed upon properties should be slowed down with efforts to put the foreclosed persons back in the homes, but there are some equally or more so compelling arguments that the ability to sell homes that have already been the subject of court orders is pretty necessary to keep the market from further collapse.
The title insurer is still going to bear a risk of loss if they get the affidavits from foreclosing entities. It’s just that the insurer will go ahead and pay off under lenders’ and owners’ policies and be the entity to pursue the forclosing bank/title insurance affiant. In some ways, this makes a lot of sense, bc the title insurer is the entity likely to have accumulated claims against the forecloser who is giving multiple affidavits for multiple property and those accumlated claims should make pursuit of legal claims more efficient and pit the party (the insurer) with the most vested interest and relatively deep pockets directly against the foreclosing lender.
A title insurer is going to have more clout to go against the foreclosing banks for their defects than an assortment of individual purchasers and lending banks. I think there’s an argument that the foreclosers having to provide direct affidavits to the title companies is likely to get them to clean up their acts more, and with less damage to some already hard hit markets, than if no title company will write title on foreclosure transactions and even purchasers who didn’t purchase owners policies are going to benefit if foreclosers know that a title company that may get bit on transactions involving lots of different lending banks is going to be coming after them.
I also don’t think there’s any disincentive from a forclosers affidavit for title companies to try to identify patent defects (like post-dated notaries – although in many of those instances those defects might be litigation defects in the court proceeding, that are typically merged into the court order if not appealed or raised in the foreclosure proceeding) because the title company is still on the hook to the lending insurer and will have to try to recover from the forecloser.
I don’t really think that title companies are going to be “doing less” than if they hadn’t come up with the affidavit option. Title companies in general would never have a duty to examine all the underlying details of a piece of foreclosure litigation (including affidavits given in that litigation) because that is the function of the court in that litigation – they would normally only be responsible for a review of the court order and appeals periods.
If the title companies were somehow goign to be charged with undertaking the responsiblity for being the entity to review the litigation proceedings for regularity and lack of fraud or latent defects and insure that regularity directly, it would add thousands and thousands to closing costs for a foreclosure property if you could even get a title company to do it. Most just wouldn’t write title for foreclosures (they don’t have any duty to provide that insurance), so foreclosed properties would have that many more problems getting a lender to loan for their purchase.
Now, while argument can be made that “well, fine, that’ll teach those foreclosing banks, especially the ones that had fraud, those properties will just sit and sit, with the owners kicked out and no one able to get a loan to buy” there are a lot of problems with that as well. For one thing, more prior owners of foreclosed properties are going to look at bankruptcy, since they typically have liability under their notes for all expenses, including carrying costs and foreclosure costs and those costs will just continue to mount. Empty properties attract vandalism and batter surrounding property values and lenders who have foreclosed property that can’t be moved are going to be causing a really big impact in the markets and vis a vis their own investors and even at times account holders.
I do think banks should have their feet held to the fire over foreclosure fraud but I’m not sure that clouding or halting the ability to allow for the transfer of forelosed properties where no appeals are pending to new purchasers is the most productive route and I think the affidavit process the title insurer is seeking may facilitate the process and put an entity with a vested interest to reduce title fraud in general and with a broad enough exposure and deep enough pockets into a position where it can now directly pressure foreclosers.
longwinded fwiw.
eric seiger
Google <b>News</b> experiments with metatags for publishers to give <b>...</b>
One of the biggest challenges Google News faces is one that seems navel-gazingly philosophical, but is in fact completely practical: how to determine authorship. In the glut of information on the web, much of it is, if not completely ...
Casting <b>News</b>: How to Score a Guest Spot on 'Glee,' Annette O'Toole <b>...</b>
If you want to be on 'Glee' and are not an A-list recording artist or an Oscar nominee promoting your new movie, there's still hope.
Kinect doubles UK Xbox sales Xbox 360 <b>News</b> - Page 1 | Eurogamer.net
Read our Xbox 360 news of Kinect doubles UK Xbox sales.
eric seiger
eric seiger
eric seiger
Google <b>News</b> experiments with metatags for publishers to give <b>...</b>
One of the biggest challenges Google News faces is one that seems navel-gazingly philosophical, but is in fact completely practical: how to determine authorship. In the glut of information on the web, much of it is, if not completely ...
Casting <b>News</b>: How to Score a Guest Spot on 'Glee,' Annette O'Toole <b>...</b>
If you want to be on 'Glee' and are not an A-list recording artist or an Oscar nominee promoting your new movie, there's still hope.
Kinect doubles UK Xbox sales Xbox 360 <b>News</b> - Page 1 | Eurogamer.net
Read our Xbox 360 news of Kinect doubles UK Xbox sales.
eric seiger
Speaking to the controversy surrounding possibly illegal foreclosures, Secretary of Housing and Urban Development Shaun Donovan said Wednesday that the White House would "not tolerate business as usual in the mortgage market."
Donovan said the results of an ongoing, multiagency review had found "significant differences" in the performance of mortgage lenders, but that the Federal Housing Agency (FHA) had not yet found any evidence of "systemic issues," in the foreclosure market.
Asserting that the Obama administration was "committed" to resolving issues surrounding the mortgage market, Donovan pointed to a meeting held earlier with 11 federal agencies -- part of an ongoing process to review foreclosures, which is expected to conclude at the end of the year.
Donovan said that in its review, the FHA is paying special attention to whether the foreclosure process was being followed correctly and whether lending agents were taking steps to keep people in their homes.
"Throughout our reviews, as we uncover bad practices, cutting corners or sloppy processes that disregard or ignore the rights and protections of any homeowner, we're committed to forcing institutions to change the way that they conduct business," he said.
Though Donovan said that the review's initial findings showed evidence of noncompliance "with FHA rules and regulations," he would not disclose which lenders were the worst offenders, nor would he specify how far along in the process the FHA might be. "There's a due process here," he said.
In the meantime, mortgage lenders, including Bank of America and GMAC, have announced plans to resume foreclosures following a temporary moratorium -- which Donovan called "their business decision." Donovan said the federal government was making efforts to expedite its review. But, Michael Barr, assistant treasury secretary for financial institutions, added that "fundamentally, this is up to the banks and the servicers to fix. This is not a problem for Secretary Donovan to fix."
In previous weeks, amid calls for a national moratorium on foreclosures, the White House maintained that a freeze on home foreclosures would be disastrous to the still-recovering housing market. "There are a series of unintended consequences to a broader moratorium," said Press Secretary Robert Gibbs.
Donovan, for his part, rebuffed any suggestions that the White House was late to the game in resolving housing market issues. "This is a longstanding focus that we've had," he said.
I’m not immersed in the foreclosure fraud crisis but I am pretty well versed on title insurance and from what little I’ve read from the excerpts here and there, I don’t see this in the same way.
Title insurance is available to owners as well as lenders. Often, owners may not be sophisticated enough to ask for it, but most realtors will steer them if they don’t think about it. So in a typical transaction, where a buyer is getting a loan for a property, the lender will require that the borrower purchase title insurance for the benefit of the lender, where the premium will be based in part on the size of the mortgage. Most owners will also request and get an owner’s policy with that premium based on the purchase price – but most title insurers will give the owner something called a simultaneous issue rate so that they pay a much reduced price since the loan amount has already been insured over in the lender’s policy.
I can’t really do justice in the amount of time I have, but once upon a time real estate transactions didn’t close on title insurance, they closed on opinions of real estate counsel and certificates of title and the like. All of those processes (including modern title insurance) involved a lot of work reviewing the actual “record title” of property, to make sure that there was a clean “chain of title.” The problem is/was that there are a lot of things that can impact title other than chaining out title.
For example, there can be a clean record “chain” for blackacre from Mr. A to Mrs. B to Ms C, and yet Ms C might not get clear title from Mrs. B. This might be because of patent defects or latent defects. A patent defect would be one obvious from a review of the documents (misspelled names, Mrs. x y B conveying as Mrs. x [no y] B, typos on dates or subscriptions or notary dates post-dating signature dates etc.) A latent defect would typically be something like a forged signature (Mrs. B is really in a nursing home and her daughter pretends to be her and sells the house) or something like Mrs. B claiming to be a widow with sole rights of survivorship in the property, when instead her husband is doing time for FISA felonies.
There are also other things that might affect either or both of title to the property or the right to use property for its intended purpose. For example, Mrs. B might have had work done to the property and have not paid the workers – for a period of time those workers might have a right to file a lien on the property (mechanics lien). So 20,000 in repairs/renovations recently completed is owing when Mrs. B sells to Ms. C, the mechanics liens against the property might not show up until a month after closing. Also, Mrs. B might have entered into an unrecorded lease of the house to Tenant T and under state laws, Tenant T might have the rights of a “party in possession” under state law and Ms. C might not be able to move into “her” house (or even get the rent, depending on things) until after, for example, lease expiration.
Also, Ms C might be looking at her lovely back yard with a beautiful hand crafted stone and wrought iron fence all around it (part of the 20,000 in mechanics liens that are getting ready to be filed) – except that this fence isn’t really on property line. Maybe she owns another 100 feet beyond, maybe she’s encroached on her neighbor’s property, maybe she’s violated a county setback ordinance. No amount of “public records” review or even fraud protection with help with that – you need surveys.
Enter title insurance. It provided a way for owners – but more importantly for lenders who were going to be in the business of loaning against lots of properties – to shift the risk of some or all of these problems to a third party. As a matter of pragmatism, it already takes a lot of time and money to do a full, back to land patent, public records search. No one is going to be able to add the full costs of outright investigations into rights of parties in possessions, possible mechanics liens issues, investigations of identies and signing rights for all persons in the chain, etc. without adding tens of thousands to closing costs.
However, some of these things don’t happen that frequently and can be greatly reduced by a few kinds of precautions. So the title insurers have standards for possible (but not deemed likely) defects that they will “insure over” (things where no one knows for sure that everything is all right – like fraud in the chain) and things for which they will take exceptions (not provide insurance for that item) or where they will insure over their exceptions based on other documentation (for example, they might not insure over rights of parties in possession in general, but if the seller signs off on an affidavit regarding rights of parties in possession, the title company may insure against rights of parties in possession or the title company may not provide boundary line insurance, but with a survey or if the property is in a platted subdivision, they might insure for that).
The fact that the title insurance company would insure for fraud defects in title and take an affidavit from Mrs. B that no one has possessory rights in blackacre and provide boundary insurance, etc. HUGELY facilitates the residential real estate market here in the states. Lenders can loan, purchasers can GET a loan, etc. all more freely and much more economically and with less risk.
Note that when the insurance company insures over defects for something like fraud in the chain, they assume that risk and have a very iffy route of recovery (the daughter who pretended to be Mrs B may be hard to find, have no assets, and more importantly didn’t have direct privity with the insurer). Similarly, when the insurer insures over a possible defect based on an affidavit (for example, Mrs. B’s rights of parties in possession affidavit) the insurance company is still assuming the risk for that difect, but now has a more direct right against the affiant.
This means that the lender with title insurance (and the owner if they got a simultaneous issue owner’s policy) gets paid by the title insurance company for losses from defects, and the title insurance company has to pursue the party who committed the fraud in the chain or the giver of the affidavit for recovery.
In this foreclosure crisis, a lot of the sellers are not Mrs B, they are Foreclosing Bank B. If no one will loan to purchasers who want to buy foreclosed properties, the problem is going to get worse. But if title insurance companies won’t insure over foreclosure defects because it is public knowledge that those defects may be very widespread and in many cases, latent or even legally uncertain, then buyers are going to have a harder time.
Latent defects in a foreclosure property might include, for example, the robosigning issue. That might mean that the foreclosure affidavits given to the courts (not filed in the real estate records), where the affiant says they have care and custody of the documents, know the history, personally reviewed everything, etc., may be fraudulent affidavits, but there is no way to tell from just looking at the foreclosure affidavit and without delving more deeply – sometimes much more deeply (and expensively).
In addition to discovering the fraud in the affidavit, typically a court order of foreclosure would supercede any objections to the fraudulent affidavit not raised in the foreclosure proceedings, so the effect of the fraud is also going to be an unknown where objections were not time raised (i.e., is there a right that affects the property, or only a right of recovery for money damages against the fraud perpetrators or only a right based on material fraud and what will be the standards for materiality if the mortagee is in default, and will it be different if there is a deed of trust v. a mortgage etc.)
So it seems to me that this is just a fairly prudent approach. On the one hand, it will facilitate the abiilty to sell properties that are the subject of foreclosure and there are some arguments to be made that moving already foreclosed upon properties should be slowed down with efforts to put the foreclosed persons back in the homes, but there are some equally or more so compelling arguments that the ability to sell homes that have already been the subject of court orders is pretty necessary to keep the market from further collapse.
The title insurer is still going to bear a risk of loss if they get the affidavits from foreclosing entities. It’s just that the insurer will go ahead and pay off under lenders’ and owners’ policies and be the entity to pursue the forclosing bank/title insurance affiant. In some ways, this makes a lot of sense, bc the title insurer is the entity likely to have accumulated claims against the forecloser who is giving multiple affidavits for multiple property and those accumlated claims should make pursuit of legal claims more efficient and pit the party (the insurer) with the most vested interest and relatively deep pockets directly against the foreclosing lender.
A title insurer is going to have more clout to go against the foreclosing banks for their defects than an assortment of individual purchasers and lending banks. I think there’s an argument that the foreclosers having to provide direct affidavits to the title companies is likely to get them to clean up their acts more, and with less damage to some already hard hit markets, than if no title company will write title on foreclosure transactions and even purchasers who didn’t purchase owners policies are going to benefit if foreclosers know that a title company that may get bit on transactions involving lots of different lending banks is going to be coming after them.
I also don’t think there’s any disincentive from a forclosers affidavit for title companies to try to identify patent defects (like post-dated notaries – although in many of those instances those defects might be litigation defects in the court proceeding, that are typically merged into the court order if not appealed or raised in the foreclosure proceeding) because the title company is still on the hook to the lending insurer and will have to try to recover from the forecloser.
I don’t really think that title companies are going to be “doing less” than if they hadn’t come up with the affidavit option. Title companies in general would never have a duty to examine all the underlying details of a piece of foreclosure litigation (including affidavits given in that litigation) because that is the function of the court in that litigation – they would normally only be responsible for a review of the court order and appeals periods.
If the title companies were somehow goign to be charged with undertaking the responsiblity for being the entity to review the litigation proceedings for regularity and lack of fraud or latent defects and insure that regularity directly, it would add thousands and thousands to closing costs for a foreclosure property if you could even get a title company to do it. Most just wouldn’t write title for foreclosures (they don’t have any duty to provide that insurance), so foreclosed properties would have that many more problems getting a lender to loan for their purchase.
Now, while argument can be made that “well, fine, that’ll teach those foreclosing banks, especially the ones that had fraud, those properties will just sit and sit, with the owners kicked out and no one able to get a loan to buy” there are a lot of problems with that as well. For one thing, more prior owners of foreclosed properties are going to look at bankruptcy, since they typically have liability under their notes for all expenses, including carrying costs and foreclosure costs and those costs will just continue to mount. Empty properties attract vandalism and batter surrounding property values and lenders who have foreclosed property that can’t be moved are going to be causing a really big impact in the markets and vis a vis their own investors and even at times account holders.
I do think banks should have their feet held to the fire over foreclosure fraud but I’m not sure that clouding or halting the ability to allow for the transfer of forelosed properties where no appeals are pending to new purchasers is the most productive route and I think the affidavit process the title insurer is seeking may facilitate the process and put an entity with a vested interest to reduce title fraud in general and with a broad enough exposure and deep enough pockets into a position where it can now directly pressure foreclosers.
longwinded fwiw.
eric seiger
eric seiger
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